GRDA and OWRB Strike Unique Bond Deal
Source: Oklahoma Water Resources Board
The OWRB was marketing its bonds to finance water and wastewater construction loans through its Financial Assistance Program, but the agency’s costs to issue the bonds were simply too high due to the unsettled market and high interest rates. Then, on Wednesday, the GRDA completed a $575 million revenue bond issue for the purpose of expanding its electric generation assets. With revenue to invest but faced with relatively low yields generated by money market funds, the traditional buyers of variable rate bonds, GRDA opted to purchase the OWRB’s bonds.
According to Chris Cochran, Executive Vice President and Director of Public Finance for Capital West Securities, Inc. the firm that underwrote the deal, the timing was perfect for both the GRDA and OWRB.
“After contacting numerous money market funds, many of whom have traditionally purchased OWRB Bonds, we discovered that they were either unwilling to invest or their interest rates would be at much inflated levels. Realizing that we were looking at the possibility of a failed remarketing or interest rates in the 8-10 percent range, and knowing that GRDA had a large sum of money that needed to be invested with few safe and financially productive options, we ultimately contacted GRDA officials. The Authority immediately realized that the OWRB bonds were a good investment under current market conditions and, at the same time, they were in a unique position to help Oklahoma cities and towns,” Cochran says.
“This was a great opportunity for GRDA to assist Oklahoma communities, not just in our service area but across the entire state. It’s just Oklahomans helping Oklahomans,” adds Kevin Easley, GRDA’s Chief Executive Officer.
"It’s been a whirlwind few weeks with the economic crisis befalling the market right as we were attempting to find investors for our bonds. Credit evaporated almost overnight and the OWRB’s bonds were caught in the middle," according to Duane Smith, OWRB Executive Director. “We were so fortunate that GRDA and Kevin Easley agreed to come to our aid and make this a win-win situation for Oklahoma.” He also points out that he’s grateful to State Treasurer Scott Meacham, whose office offered on Wednesday a contingency proposal to purchase the OWRB's bonds for the state's investment portfolio. The GRDA purchase proved to be a more advantageous deal for the OWRB’s borrowers.
“The bottom line is that the OWRB’s customers can now make reasonable payments for their water and sewer system projects while GRDA can utilize proceeds from the bond sale to finance improvements for its customers in northeast Oklahoma,” Smith adds.
“Not only does GRDA benefit from considerably higher yields, but the OWRB’s bonds are a very safe investment in a quite volatile market,” says Joe Freeman, chief of the OWRB’s Financial Assistance Division. “The OWRB can offer a lower interest rate, which saves our borrowers—32 Oklahoma cities, towns and rural water districts—a collective $1.4 million just over the next six months.”
The loans will incur a 4.3 percent interest rate for the next six-month period, higher than the OWRB’s desired rate but approximately equal to the average variable rate since 1986. Cochran points out that although the marketplace remains fraught with substantial uncertainty, he remains hopeful that money will soon flow back to money market funds and the OWRB will be able to continue marketing to that market segment in the near future.
Contact:
Joe Freeman, Chief
OWRB Financial Assistance Division
405-530-8800